BIMB Research expects manufacturers to adopt a cautious stance in the first quarter of 2025, focusing on inventory and cost management.
PETALING JAYA: Despite weaker-than-expected performance, analysts remain cautiously optimistic about Malaysia’s industrial output, highlighting the resilience of the country’s manufacturing sector as a key support.
BIMB Research, for one, noted that Malaysia’s manufacturing sector continues to be a critical pillar of industrial growth, supported by consistent sales performance.
“The manufacturing sector’s sales value has consistently remained above RM160bil for three consecutive months, signalling resilience,” the research house said.
It pointed to October’s manufacturing sales growth of 3% year-on-year (y-o-y), a marginal improvement from September’s 2.9%, reinforcing this stability.
Looking ahead, BIMB Research believed the sector could benefit from a global recovery in early 2025, contingent on stabilising economic conditions and stronger demand in key markets.
“China’s resurgence is particularly critical, given its key trade relationship with Malaysia.
“While opportunities abound, challenges linger in the form of supply chain disruptions, volatile commodity prices, and geopolitical tensions, especially the ongoing US-China decoupling,” it explained.
On the bright side, BIMB Research said Malaysia is well-positioned to capitalise on diversification trends, as global companies increasingly adopt a “China-plus-one” strategy, redirecting supply chains to South-East Asia.
However, with November’s manufacturing purchasing managers’ index (PMI) dipping to 49.2 from 49.5 in October, the research house expected manufacturers to adopt a cautious stance in the first quarter of 2025 (1Q25), focusing on inventory and cost management.
“Overall, the recovery in 2025 is expected to hinge on improvements in global demand and sustained support from Malaysia’s domestic economic drivers.
“The manufacturing sector is poised to gain momentum, particularly from the growing global demand for artificial intelligence technologies,” it said.
According to the Statistics Department data on Tuesday, Malaysia’s industrial production index (IPI) growth fell to 2.1% y-o-y in October, down from 2.3% in September.
The performance fell short of the consensus forecast of a 2.6% y-o-y growth, as a deeper decline in mining production (-2.8% y-o-y) and slower growth in electricity output (+2.5% y-o-y) overshadowed a slight improvement in manufacturing output (+3.3% y-o-y).
Kenanga Research highlighted that the manufacturing index grew 4.2% y-o-y in the first 10 months of 2024 (10M24), underpinned by strong demand for electrical and electronics products.
However, it expects growth to slow towards year-end due to seasonal trends and weaker PMI readings.
“Seasonal trends indicate that manufacturing output usually slows on a month-on-month basis towards the end of the year,” it explained.
The research house projected 2024 manufacturing index growth to fall below its initial forecast of 4.6%, with output growth in the 4Q24 likely moderating to below 5%.
Despite this, Kenanga Research maintained its full-year gross domestic product (GDP) growth forecast at 5% for 2024, supported by resilient domestic demand.
It anticipated GDP growth to moderate to 4.8% in 2025, with manufacturing output expected to expand by 4.7% next year.
Meanwhile, TA Research noted that Malaysia’s IPI grew 3.7% y-o-y in the 10M24, driven by solid performances in the electricity (+6.3% y-o-y) and manufacturing (+4.2% y-o-y) sectors.
The mining sector’s growth remained modest (+0.9% y-o-y) due to temporary shutdowns, though its contribution to GDP remains significant at 5.3%.
“As we approach the final quarter of the year, the mining index continues to show contraction, primarily due to temporary shutdowns. However, this is expected to be mitigated by the resilience of the manufacturing sector.
“Together, these sectors play a significant role in the economy, with mining contributing 5.3% to GDP and manufacturing accounting for 23.2%,” TA Research said.
The research house kept its GDP growth forecast of 5% for 2024, attributing it to the collective strength of the IPI components.
Hong Leong Investment Bank (HLIB) Research pointed to stabilising factory activity worldwide as a positive signal, with the global manufacturing PMI improving to 50 points in November from October’s 49.4.
“New orders rose for the first time in five months,” HLIB Research noted, adding that this indicated a potential turnaround in global demand.
“We continue to expect Malaysia’s industrial production to remain expansionary for the remainder of the year, supported primarily by domestic spending and front-loading purchases,” it added.
HLIB Research retained its 2024 GDP growth forecast of 5%, noting that Malaysia’s industrial output is expected to remain resilient in the near term, despite external uncertainties.
